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Implementation Completion Report (ICR) Review - PSD 2


  
1. Project Data:   
ICR Review Date Posted:
12/12/2005   
PROJ ID:
P035811
Appraisal
Actual
Project Name:
PSD 2
Project Costs(US $M)
 14.00  10.05
Country:
Moldova
Loan/Credit (US $M)
 9.00  8.55
Sector, Major Sect.:
Agricultural extension and research, Other industry,
Agriculture fishing and forestry; Industry and trade
Cofinancing (US $M)
 5.00  1.50
L/C Number:
C2962      
   
Board Approval (FY)
  97
Partners involved
EU TACIS 
Closing Date
06/30/2002 03/31/2005
         
Evaluator: Panel Reviewer: Group Manager: Group:  
Kris Hallberg
Fernando Manibog Alain A. Barbu OEDSG

2. Project Objectives and Components:

a. Objectives
The objective of PSD II was to help the Government of Moldova increase the managerial capacity of recently-privatized and other private firms and thus improve their productivity and competitiveness in domestic and international markets. This was to be achieved by (i) providing managers with competitiveness information about international and domestic benchmark standards and marketing requirements, and (ii) investing in managerial skills through on-the-job training for managers of private/privatized enterprises by way of secondments to leading industrial counterparts in Central and Western Europe, East Asia, and the United States. The project was the second of three Bank-funded projects to support private sector development in Moldova. The First Private Sector Development Project helped to release productive assets from former state enterprises to the private sector and provide access to financing for enterprise development. The third project, the ongoing Competitiveness Enhancement Project, aims to improve the business climate for enterprise development.

b. Components (or Key Conditions in the case of Adjustment Loans):
The project had two components:

(a) A Competitiveness component (Investing in Best Practice Information, or IBPI): providing benchmarks on enterprise and sector performance as well as identification of domestic and international opportunities. (Appraisal estimate $2.50 million; actual cost $0.30 million.)
(b) A Productivity component (Investing in Improvement of Managerial Skills, or IIMS): provision of on-the-job training of managers abroad. Participants would be selected from managers that participated in the project's pre-placement training in common business foreign languages, basic computer skills, and management training. IIMS would also disseminate experiences brought from abroad to other managers and enterprises. (Appraisal estimate $11.5 million; actual cost $$9.75 million.)
The project was implemented by the Competitiveness and Productivity Center (CPC), a non-profit, non-governmental, independent legal entity created under the project.
Toward the end of the project, in 2004, CPC added a new short-term training program to meet the needs of managers who could not leave their company for months of training.

c. Comments on Project Cost, Financing, Borrower Contribution, and Dates
The project was to be financed by the IDA credit ($9.0 million), EU-TACIS ($2.0 million), and the Government and private firms, the latter in the form of cost-sharing of training ($3.0 million). The Government also was to provide in-kind contributions (office space, equipment, etc.). The expected funding from EU-TACIS, which was intended to cover 72 percent of the cost of the Competitiveness component, did not materialize. As a result, CPC used a combination of its own funds from consulting and placement services and $0.7 million of IDA financing to develop a database on best practices emerging from the management internships, purchase databases for benchmarking, and develop consulting services. In the end, however, the actual cost of the Competitiveness component was only 12 percent of the appraisal estimate. The contribution of the Government and private enterprises was about half of the appraisal estimate, due to the Government's budget shortfall arising from the Russian financial crisis and apparently due to a lack of cost-sharing on the part of private enterprises.
A delay in effectiveness was caused by the long process of loan ratification by the Parliament of Moldova. Another delay in implementation resulted from the lengthy procurement time required for the project's largest contract, consultant services for the management training program. The closing date was extended three times: the first (from June 2002 to June 2003) to make up for delays in project start-up, the second (to June 2004) due to difficulties in placing participating managers in host company assignments outside Moldova, and the third (to June 2005) to extend the project's outreach and implement the added short-term training program.


3. Relevance of Objectives & Design:

The project was highly relevant to Moldova's development agenda. Although the country had implemented one of the most rapid and broad-based mass privatization programs in the Former Soviet Union, Moldovan enterprises were losing domestic and foreign markets due to their low competitiveness. One reason for this low competitiveness was the lack of managerial skills in the newly emerging private sector. The Government had emphasized improved management as a driving force for a "New Moldova" and had introduced annual Presidential awards for Best Manager and Highest Quality Improvement. Project design followed some of the methods of the post-World War II Marshall Plan, which sent European managers to the United States for training.

4. Achievement of Objectives (Efficacy) :

The project's objective, to increase the managerial capacity of recently-privatized and other private firms and thus improve their productivity and competitiveness in domestic and international markets, was substantially achieved. The ICR provides the following evidence:
  • 465 managers from over 300 enterprises participated in two training modules of the program (internships in EU accession countries and internships in countries with advanced market economies), exceeding appraisal targets (400 managers from 200 countries). The ICR does not report on the number of managers that participated in the pre-internship training (vis-a-vis the target of 2000). Most of the participants came from small-scale enterprises, reflecting the composition of the Moldovan private sector.
  • About 65 percent of the participating companies surveyed during project implementation had concluded contracts with foreign partners, in most cases with the host company, after their internships. (However, the ICR does not provide evidence on causality: in some cases, host companies may have accepted interns because of their interest in developing a joint venture with the Moldovan enterprise.)
  • The quality of action plans developed by participating enterprises improved over the course of the project. In 2000, the Bank rated only five percent of action plans as likely to have a significant impact on the operational performance of the enterprise. By the end of the project, about 75 percent of the managers had prepared action plans judged by the Bank to be likely to bring about substantial improvements to the firm's performance.
  • The performance of participating enterprises was far superior to the performance of non-participants in terms of value added (an increase of 146 percent versus 107 percent) and labor productivity measured by sales per employee ($9,200 versus $6,400). (However, the above-mentioned issue of selection bias should be considered when interpreting these results.)
  • Managers' lessons from training experiences were disseminated via seminars, conferences, articles, etc.
  • CPC carried out industry analyses and benchmarking exercises as well as training of CPC consultants (However, the ICR does not provide information on the outcomes of these project outputs.)

5. Efficiency:

Neither the Staff Appraisal Report nor the ICR attempted to calculate an ERR. The SAR did prepare a cost/benefit analysis of investments in management training, and estimated that the projected 200 participating enterprises would cover part of the costs of training. There is no evidence in the ICR that this cost-sharing took place.
6. M&E Design, Implementation, & Utilization:

"Process" and "outcome" indicators were specified at appraisal, although the Staff Appraisal Report did not give target values for all of these indicators. Following the project's mid-term review, some of the indicators were changed and others were added. Some final outcome indicators (e.g., the increase in a participant firm's net profits) were replaced by intermediate outcome indicators (e.g., the quality of the action plan prepared by a trained manager). Although the project M&E system appropriately compared the performance of enterprises that sent managers to the project's training program with enterprises that did not participate, it appears that no effort was made to deal with selection bias. This calls into question some of the project impact results reported in the ICR: compared to non-participants, participating firms may have been more successful or more motivated to succeed, suggesting that their superior performance may not have been attributable to the project alone.
7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):

None.

8. Ratings:
ICR
OED Review
Reason for Disagreement/Comments
Outcome: 
SatisfactorySatisfactory
Institutional Dev.: 
SubstantialSubstantialThe institutional development rating refers to the capacity of CPC, which was created under the project. Several outputs that were the responsibility of CPC exceeded their targets, and CPC generated additional funds from other donors as well as self-financing from fee-based operations.
Sustainability: 
LikelyLikelyThe benefits of improved managerial capacity are likely to be sustained, and the Government has taken actions to support the continuation of CPC.
Bank Perf.: 
SatisfactorySatisfactory
Borrower Perf.: 
SatisfactorySatisfactory
Quality of ICR: 
Satisfactory

NOTES:
- When insufficient information is provided by the Bank for OED to arrive at a clear rating, OED will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.

9. Lessons:

Management training programs and foreign internships can help firms in emerging market economies to increase their access to foreign markets, find more reliable suppliers, and forge joint venture partnerships.
  • Management training programs should be tailored to the needs of participants. Managing directors are likely to find training of two to three months too long to be away from the enterprise, so it may be better to provide them with shorter courses on specific themes. In contrast, some line managers may be interested in much longer courses, especially in the application of new technologies.
  • Internship programs designed to send managers from developing countries to host companies in developed market economies need to be based on a business-oriented rationale. Many host companies are unwilling to give the time needed to mentor a manager for two to three months without some business-oriented purpose, such as the prospect of a joint venture in a market that interests them.

10. Assessment Recommended?  Yes

          Why?  When the ongoing Competitiveness Project is completed, it would be useful to audit all three PSD projects in Moldova (PSD I, PSD II, and the Competitiveness Project) to provide lessons on the design and sequencing of privatization, management training, and business environment reforms in small transition economies.

11. Comments on Quality of ICR:

The ICR is of good quality. There are some discrepancies in the data presented in the text versus the annexes (for example, on the Government and private sector share of project costs). The "success stories" included as additional information in the ICR provided an interesting flavor to the analysis.

(ES-Rev4-Jul/05)
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